I spend my last 6 months in a lot of cryptocurrency Reddits and informed myself about the topic. I read a lot of misinformation in the non crypto Reddits every day and because of that I am making this post to clear some things up and explain everything. Sorry for the wall of text, there will be a tldr; at the end
- How do mining profits work?
The Ethereum network pays out people who mine for them in Ethereum. The total daily amount of Ethereum giving out is more or less constant for now which means that if only a single person mines he gets everything, if a million person mine with the same hash power behind them everyone gets 1/1,000,000 of the reward, the reward itself does NOT increase, only the price of the ETH can increase.
Normally people would buy more GPUs until they reach a point of only a small profit compared to the energy costs and it would a reach a point of balance between total network hashrate and profit in USD (like it was in the last 3-4 years). The problem is that the price spiked multiple times way too fast and GPU manufacturing can't keep up which causes GPU prices to spike and delays this point of balance which results in MASSIVE profits for everyone who mines because the hashing power "supply" is capped. We are talking about 100$ a month with a SINGLE RX 480 right now (80$+ with power cost included).
Actually quite soon (yay). This is sadly a truth that not many miners know of (not to mention some are delusional... you will find them in the comments) and very few people think about. Even the popular Youtube channels have no idea about this. Before I come to the end of GPU mining first there are some numbers.
- How many GPUs are out there and how much are the total profits?
The current network hashrate is about 191TH/s
and a total daily reward paid of 31,239,969$
in the last 24 hours. Because a single RX 480 gets about 28MH/s (pretty much average), we have about 6,821,428 GPUs mining ONLY Ethereum right now. If you every wondered how much money you need for a global GPU shortage the answer is about 30 million dollar daily.
- Can you finally tell us when and how it stops? I want to play pubg!
Ok ok... the thing is the Ethereum network doesn't need your GPU power. It only uses it as a spam filter to make it harder to manipulate the network. You would need over 50% of the total hashrate to reliably fake transactions, think of it as a giant google captcha. You can easily replace that captcha with another one and this is exactly what Ethereum does in the near future. Proof of stake means instead of wasting GPU power you just stake your Ethereum and the more of your Ethereum you invest the more voting rights and rewards you get. If you are caught trying to cheat your whole money gets confiscated and donated to everyone else depending on their voting rights. Full proof of stake will probably be implemented late 2018 but just to be fair it already got delayed multiple times so there is no clear 100% date for it yet.
- So... Ethereum fires all the miners, wont miners just mine something else?
This is where the misconception starts. There is actually a second point of balance in all of this. All cryptocurrencies will always divide all the hashing power between them until they all reach about the same profit (people always switch to what gives the most profit). It may seem like there are a lot of profitable cryptocurrencies to mine but that is actually an illusion. Many of the smaller coins would be unprofitable after a few thousand GPUs because their total $ reward giving out daily is pretty small. The thing is nobody mines something that gives less profit so they switch. To sum it up Ethereum is basically the minimum payment job and everyone who goes below that wont find anyone willing to do the job until they get more profitable than Ethereum.
Now what happens if 6.8 MILLION RX 480 are jobless after a single update? They will all start mining something else. The problem is Ethereum has a GIANT majority in hashrate and all other mineable cryptocurrencies combined can't be profitable after Ethereum switches even if their prices spike by 10x.
OH HELL YEAH IT IS THAT BAD! Every heard of Monero? It is the cryptocurrency that caused the RX Vega shortage. Any idea on how much daily rewards they give out? A giant 1,504,249$
in the last 24 hours. Yes that is 20.7 times less and we are talking about the second biggest mineable coin out there. As soon as Ethereum fires all the miners everything will collapse and profit will turn NEGATIVE for a while unless you have free power. Q4 2018 is the end of mining for probably ever.
Because the Ethereum code is open source and everyone can use it there will most likely be more coins that follow proof of stake after that (there already are some that already have it) so mining will most likely never come back.
- Why the switch to proof of stake?
There are many benefits. It consumes A LOT less power, it is most likely faster and people who hodl Ethereum get more Ethereum for just having it. Free interest rate hype! But the most important thing about this is that miners control the currency and every update to it. Sadly they don't have the same interests as people who want the crypto to succeed and improve. For example Bitcoin's block size is kept at 1mb even though increasing it was always the plan since 2009. Why? It's very simple. You can only fit X amount of transactions in 1mb and if it gets more than that only people who pay more get their transactions in faster which means more fews are being paid to the miners. While they make a fortune the currency suffers with spikes to 50$ for a SINGLE transaction (currently it's 18$). If the power goes to the ones having the currency they are directly interested in the well being of the currency which is better for everyone.
- So... what does all of this actually mean?
We will get the biggest GPU mass sell off in the history of the technology itself. I wouldn't be surprised to find a RX 480 for 100$ in December. Miners already made the price of the GPU back multiple times, they don't care about the price if they get at least something. This will be a GREAT time for buying GPUs. It already happened once in 2013? when ASIC miners got introduced for Bitcoin mining and all R9 290(x) got dumped on the market because they went from awesome miners to completely useless overnight. This time will be much bigger though because of the sheer amount of GPUs used for mining.
- AMD's and Nvidia's part in this
AMD did ramp up production last time with the r9 290(x) and got completely rekt. They couldn't sell the GPUs anymore and the used r9 290(x) were way too cheap to compete with. This time they are smarter and they just make as much as they can without investing too much while basically selling everything they produce for almost a whole year. Nvidia is about the same right now, they are just making bank without risking much. If you ever wondered why the 1070ti exists, it is basically a mining only GPU. The 1080 is horrible for Ethereum mining because of GDDR5X timings but the 1070ti has the same GPU power with GDDR5 non x. They only made this for more profit when selling to miners.... yet no reviewer called them out for this to my knowledge.
GPU prices will crash hard and the used market will have laughable low prices. These GPUs actually run undervolted, underclocked and at a low temperature the whole time because the bottleneck is the memory speed which means they are in EXCELLENT condition. Maybe their BIOS got flashed for better memory timing but you can just switch to the second BIOS or flash it back to normals. These will the GREAT to buy. Note that r9 290(x) and 390(x) GPUs should be avoided because they have such an overkill memory setup that their GPU core is the bottleneck (-> overclocked, overvolted and run at 90c+).
Well they will have a problem. Nobody will buy a 1180 if they can get a GTX 1080 for 200$ compared to something like 600$. Especially if Nvidia releases the 1180 while mining is still a thing. I guess they will wait with the 1180 or release a 1280 shortly after mining died with a really competitive price (if AMD can't compete they will just compete with themself...). Just think of the GTX 970 which got released with a 299$ MSRP and got actually sold at that price!
This got way longer than expected... well I hope you learned something. Just comment if you want to correct something or have a question. Most of these are assumptions based on thinking so none of this has to happen but is in my opinion very likely to happen. tldr;
Because Ethereum has almost all of the GPU power behind it and will fire all the miners in around Q4 2018 with the switch to proof of stake there will be a huge excess of GPU power and prices will crash hard.
edit: if you only care about numbers and facts and want a better distinction between assumptions and facts read my other comment https://www.reddit.com/pcmasterrace/comments/7rqkmo/clearing_up_some_confusion_about_cryptocurrencies/dsyzg6b/
*Please note that values are only estimations based on past performance - real values can be lower or higher. Exchange rate of 1 BTC = 12982.45 USD was used. The complete list of mining hashrate benchmarks for AMD and NVidia Graphics cards. Still many values to be filled in, but we will get there! (Ethash) Hashrates (X16R, BEAM, GRINCUCKATOO29, GRINCUCKATOO31) Hashrates (CryptoNight, CNR, CNHeavy, CNV7, CNV8) Hashrates (Keccak, NeoScript, Lyra2REv2, Lyra2REv3,Lyra2Z) Hashrates (Decred, Blake2s, Pascal, Equihash, ZHash) Hashrates (MTP, CUCKOOCYCLE ... Back in September with the release of the new Maxwell-based NVidia GPUs, the GTX 970 and GTX 980 we did some performance testing of the GeForce GTX 980 hashrate using the available at that time ccMiner and CudaMiner miners. Today, a bit over two months later we’ve decided to check how hings have progressed in terms of performance improvements of the various crypto mining algorithms with the ... MSI GTX 970 Hashrate : GeForce GTX 1080 Ti: 34 MHash/s: Ethereum: 250: 1800-Evga: Nvidia: Evga GeForce GTX 1080 Ti Hashrate : R9 290: 25 MHash/s: Ethereum-XFX: AMD: XFX R9 290 Hashrate : GTX 1070: 32 MHash/s: Ethereum: 150: 9675-Gigabyte : Nvidia: Gigabyte GTX 1070 Hashrate : Radeon RX 480: 26.9 MHash/s: Ethereum: 78: 1100-Asus: AMD: Asus Radeon RX 480 Hashrate : RX 580 4GB MSI Gaming X 4G ... nvidia gtx 970 nvidia gtx 980 nvidia gtx 980 ti nvidia p102-100 nvidia p104-100 nvidia p106-100 nvidia rtx 2060 nvidia rtx 2060 super nvidia rtx 2070 nvidia rtx 2070 super nvidia rtx 2080 nvidia rtx 2080 super nvidia rtx 2080 ti nvidia rtx 3080 nvidia rtx 3090 ...
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